Condominium and Homeowners Associations are frequently asked to issue or complete estoppel letters and/or mortgagee/bank questionnaires in connection with a sale of a unit or parcel or the refinancing of an owner’s existing mortgage. These two types of documents are different and an Association’s obligation to complete each document is also different. In this memorandum we explain the two types of forms and what legal obligation an Association has in regard to each form.
Estoppel Letters
In this context an estoppel letter is a letter prepared by an Association at the request of a lender who is funding the purchase or refinancing of a Unit and the buyer of the Unit. The letter discloses the amount of the current rate of assessments owed on the Unit, the due dates for the assessments, whether or not the assessments are paid current and if there are any other charges on the account that have not been paid. This is also in important opportunity for the Association to disclose any types of violations such as unauthorized improvements/alterations made to the Unit or parcel that need to be corrected. The buyer and lender then use this information to evaluate the transaction and most importantly to make sure that all past due assessments are paid current at the time of the closing. In addition to the foregoing, the legal importance of an estoppel letter to the buyer is that it prevents the Association from, after the closing, claiming that additional money is due on the Unit. After the issuance of the letter the Association cannot claim that any additional amounts are due that were not disclosed in the estoppel letter. As such it is very important that the Association issue an accurate estoppel letter.
Condominium and Homeowners Associations are required by law to issue estoppel letters within 15 days of request. (See Florida Statutes 718.116 (8) and 720.30851). Further, the Association may charge a “reasonable fee” to issue estoppel letters. A fee of up to $150.00 is generally recognized as being reasonable. The law provides that if the title company or purchaser pay the estoppel letter fee and the sale does not close they are, upon request, entitled to a refund of the fee. However, in such cases the Association is allowed to charge the fee to the owner.
Mortgagee/Bank Questionnaires
A mortgagee/bank questionnaire is a document containing a series of questions that the lender that is contemplating funding a purchase of a Unit or parcel or the refinancing of an existing mortgage asks the Association to answer. The information obtained will then be used by the lender to evaluate whether or not it wants to make the loan. Mortgagee/bank questionnaires often contain up to 4 or 5 pages of very detailed questions about the various aspects of the Condominium or HOA community. Such questions typically include 1. How many units are owner occupied?; 2. How many units are owned by an artificial entity such as a trust, corporation or partnership?; 3. How many units are delinquent in the payment of assessments?; 4. How many Units are owned by individuals who are not husband and wife?; 5. Are their any lawsuits pending in which the Association is party and what is the nature of the suit?
This information is relevant to lenders as they have internal lending guidelines which will dictate whether or not they will make the loan and/or what interest rate they will charge. For example, the higher percentage of investor owned/rented units as opposed to owner occupied units will typically negatively impact the lenders decision to make the loan.
Condominium and Homeowner Associations are NOT required by law to complete mortgagee/bank questionnaires. (See Florida Statutes 718.111(12)(e) 1 and 2 applicable to Condominiums and 720.303(5)(d) applicable to HOA’s). If an Association does however choose to answer the questions it may charge up to $150.00 plus legal fees. Many of the questions on the form require legal answers. The answers to these types of questions constantly change (i.e. number of rented units; how title is held) and each bank’s form is different and contains different questions. Therefore, the completion of the form is time consuming and keeping the information current is difficult at best.
In reality what the lender is attempting to do is to pass the burden of doing its due diligence off to the Association. Much of the information requested is available in the public records (lawsuits and title information) and can be obtained by the lender. Other information such as the number of rented Units is available to any owner by reviewing the official records of the Association.
As such most Associations either refuse to complete the forms or only answer certain basic questions such as the name of the Association’s insurance carrier. If the Association does answer any of the questions it may and should add the disclaimer: “The responses herein are made in good faith and to the best of my ability and accuracy.” Adding this disclaimer absolves the Association from liability for mistakes made that are relied on by the bank.
Alternatively, there are services that will answer mortgagee/bank questionnaires on behalf of the Association for a fee. One such service is CondoCerts. We have never used the service and do not know how it works.
Finally, when the Association refuses to complete a mortgagee/bank questionnaire it is common for the bank, the seller and the purchaser to complain loudly and aggressively to the Board and sometimes even threaten the Board or CAM. Keep in mind several points. 1. The Association has no legal obligation to complete the forms; 2. If the Association completes the form for one owner, it must be prepared to do the same for all owners. 3. In reality, we have never seen a transaction fail to close because the Association refused to complete the form or would only answer some of the questions. Inevitably, the lender obtains the necessary information on its own and the sale closes.
Condominium Frequently Asked Questions and Answer Form.
A third type of related document is the Condominium Frequently Asked Question and Answer Form. This document is required by law to be prepared and updated annually by Condominium Associations only (not HOA’s). This form requires the Association to answer 10 frequent questions and have the completed form available upon request. The questions are more in the nature of assessments and applicable rules affecting the use of the Unit. The Association is not allowed to charge a fee for this form.
Disclaimer: The information contained in this memo is general in nature and is not intended to be legal advice for a particular situation.
© 2010
Richard DeBoest II, Esq.,
Condo & HOA Law Group, LLC
(239) 333-2992 Ft. Myers, FL |
